U.K. house prices fell in May as the squeeze on mortgage lending kept declines close to the most widespread level in at least three decades, the Royal Institution of Chartered Surveyors said.
The number of residential property agents and surveyors saying prices fell exceeded those reporting gains by 92.9 percentage points, the group said today. That compares with 94.7 percent the previous month, which was the most since the series began in 1978. The reading for London was minus 90, close to the 14-year low of minus 92 recorded in April.
Banks approved the fewest home loans in at least nine years in April, preventing more homebuyers from making property transactions. Two-year U.K. notes fell the most in 10 years yesterday as traders bet accelerating inflation will force the Bank of England to raise interest rates even as the economy faces the threat of a recession.
“While demand remains weak and housing transactions continue to evaporate, there is a very real danger to the wider economy,'' Jeremy Leaf, a spokesman for RICS, said in a statement.
Every region tracked by RICS showed prices declining over the past three months. In London, more real-estate agents have reported price drops than gains for seven consecutive months.
`Financial Woes'
“Financial woes are still the main worry affecting the housing market in central London,'' said Benson Beard, an estate agent with Bective Leslie Marsh in the capital. “It is likely to remain this way until the end of the year.''
Falling house prices are making it harder for Prime Minister Gordon Brown to revive the fortunes of his ruling Labour Party. Support for Labour has slipped 4 percentage points to 25 percent since early May, while the Conservative Party's support rose 5 points to 45 percent in a Populus poll, the Times said today payday advance.
Inflation, which jumped the most since 2002 in April to reach 3 percent, is also hurting the government. It has raised the prospect that the Bank of England may need to lift its benchmark rate from the current 5 percent. U.K. two-year notes fell yesterday after data showed prices charged by factories rose 1.6 percent from April, the most since at least 1986.
Increases in borrowing costs may exacerbate the housing- market downturn, which is worsening as banks halt lending. House prices fell 2.5 percent in May, the most since at least 1991, Nationwide said on May 29. The Department for Communities and Local Government said today that the pace of annual house-price gains slowed in April to 4.9 percent from 5.2 percent in March.
Retail Sales
Revenue at shops open at least a year still rose 1.9 percent from a year earlier in May, the first gain in three months, the British Retail Consortium said today. The group, representing 80 percent of stores, conducted its survey from May 4 to May 31. Manufacturing production increased 0.1 percent in April, the Office for National Statistics said today.
The cost of home loans with a 5 percent down payment rose to the highest in more than eight years in April, according to central bank data. Mortgage approvals fell to 58,000, the lowest level since records began in 1999.
“If transactions remain 50 percent lower than they were last year this has real repercussions for the wider economy,'' Simon Rubinsohn, chief economist at RICS, said in an interview with Bloomberg Television. “It's still pretty scary stuff.''
Get ready for higher airfares and get used to those crowded planes as rising oil prices force airlines to face the grim prospects of finding ways to deal with multi-billion dollar fuel bills.
In the latest move from the battered airline industry, United Airlines said Wednesday it will reduce its fleet by 100 planes by 2009 and will cut 1,400 to 1,600 jobs to stave off losses related to fuel costs.
This means that passengers will pay even more to fly as airlines scramble to curb their losses from escalating fuel prices, analysts said. To add insult to injury, the planes will also get more crowded as airlines reduce capacity.
Raymond Neidl, airline analyst for Calyon Securities, said the airlines would have to raise ticket prices by at least 30% to match fuel costs, though he said it’s unlikely they could get away with an increase that steep.
Michael Derchin, airline analyst for FTN Midwest Securities, said passengers should expect fares to go up another 5% through 2009, on top of the 7% increase that’s already happened this year.
"The marginal traveler will be priced out of the market, as it should be in this environment," said Neidl. "The consumer’s not paying his [share] with these oil prices. They’ve got to start pricing the product to reflect the cost of producing the product."
Since airlines are trying to save money by reducing capacity, Derchin said that passengers should expect more crowded planes.
"With this level of capacity reduction, you’re talking about load factors in the 90% range, which effectively means full airplanes wherever you go," said Derchin. "The choice for consumers will be reduced, meaning fewer flights and fewer destinations."
Derchin said United’s capacity reductions would have the most impact on its hubs in Denver, Chicago, San Francisco and Los Angeles.
United, owned by UAL Corp., (UAUA, Fortune 500) said it was culling six B747s and its entire fleet of 94 B737s. The airline described the B737s as its "oldest and least fuel-efficient" planes. The company’s stock rose more than 11% on the news.
The money-losing airline industry is fighting for survival under the weight of escalating oil prices. United said it is making the cuts to help deal with an additional $3 billion in fuel costs this year. On Monday, the International Air Transport Association, representing 240 carriers, projected that soaring fuel prices would cause the industry to lose $2.3 billion this year.
United is the latest to announce cuts to jobs and planes, but it won’t be the last, said Neidl of Calyon.
American Airlines said on May 21 that it would reduce capacity by 11% to 12% in the fourth quarter. The Associated Press quoted Chief Executive Gerard Arpey as saying he might lay off thousands of staffers http://abc-cashadvance.com. American, owned by AMR Corp., (AMR, Fortune 500) is the leading U.S.-based carrier.
Neidl said that Delta Air Lines (DAL, Fortune 500), the third-largest airline in terms of annual sales, will probably be the next among the major carriers to slash jobs and ground aircraft.
Bob McAdoo, airline analyst for Avondale Partners, noted that Delta made a similar and successful cut to capacity after filing for bankruptcy in 2005. "That was a major step in changing the economics of their business and actually enabled them to make some money, even during bankruptcy," he said.
McAdoo described United’s cuts as "substantial" and "enough to make a difference."
United said it was trimming its domestic capacity in the fourth quarter by 14% year-over-year. This means that during the 2008-2009 period, capacity would be reduced by 17% or 18%, the airline said.
The job cuts include 500 previously announced reductions, which will happen by year’s end, United said. The reductions will include salaried employees, managers and contractors, according to the airline. United currently employs 55,000 workers.
The culling of the fleet includes the previously announced elimination of 30 B737s. United said it would phase out 80 planes by the end of 2008, and idle another 20 planes in the following year.
"This environment demands that we and the industry act decisively and responsibly," said United’s Chief Executive Glenn Tilton, in a press release. "At United, we continue to do the right work to reduce costs and increase revenue to respond to record fuel costs and the challenging economic environment."
The airlines have also been focusing on mergers as a means of survival. On May 30, United and US Airways (LCC, Fortune 500) backed out of a potential deal that would have created the world’s largest airline, according to the AP. Meanwhile, Delta (DAL, Fortune 500) and Northwest Airlines (NWA, Fortune 500) are working on a potential merger.
Some airlines have also been adding fees to once-free benefits, such as snacks and checked baggage. Despite this cost cutting, airlines are finding it harder to survive as they get squeezed by soaring fuel costs.
The British airline Silverjet, which serviced Newark-Liberty Airport in New Jersey, became the industry’s latest casualty on May 30 when it suspended operations. The next casualty could be Mesa Air (MESA), which may file for Chapter 11 in July if a contract with Delta falls through, according to the AP.
Australia's trade deficit narrowed in April to the smallest gap in 14 months as a surge in coal shipments pushed exports to a record, helping boost an economic expansion in its 17th year.
The trade shortfall shrank to A$957 million ($916 million) from a revised A$2.55 billion in March, the Bureau of Statistics said in Sydney today. The median estimate of 20 economists surveyed by Bloomberg was for a A$1.7 billion deficit.
Rising exports supports the central bank's view that the nation's terms of trade, a measure of income from overseas sales, will surge 20 percent this year, offsetting slower consumer spending. Reserve Bank Governor Glenn Stevens left the benchmark interest rate at a 12-year high of 7.25 percent this week, and signaled he is prepared to raise borrowing costs again if economic growth doesn't slow enough to stem inflation.
“The stimulus to the economy from the boost in the terms of trade poses a clear and present danger to interest rates,'' said Alex Joiner, a senior economist at Australia & New Zealand Banking Group Ltd. in Melbourne.
Income from exports may keep inflation above the central bank's target range of between 2 percent and 3 percent for longer “than the Reserve Bank is comfortable with, leading to at least one, but probably two, hikes in the cash rate this year,'' Joiner said.
Exports Surge
Exports rose 6 percent to A$20.4 billion in April from March, the most since the government began publishing monthly figures in 1971, and almost double the amount from five years ago.
Coal shipments jumped 23 percent and exports of iron ore rose 2 percent, today's report said. Meat exports increased 11 percent and wheat surged 7 percent.
The Australian dollar traded at 95.48 U.S. cents at 12:20 p.m. in Sydney from 95.66 cents before the report was released. The two-year bond yield rose 1 basis point, or 0.01 percentage point, to 6.87 percent.
The monthly trade balance, which has been in deficit since March 2002, widened to a record A$3.22 billion in February as exporters battled bottlenecks at mines and congestion at ports and railways easy payday loan.
Economic Growth
Export constraints in the first quarter, including heavy rain in Queensland state's Bowen coal basis, helped cut economic growth to the slowest pace in almost two years, a report published yesterday showed.
Gross domestic product rose 0.6 percent in the March quarter from 0.7 percent in the previous three months. Australia is the world's largest shipper of coal, iron ore and wool. Exports account for about 20 percent of gross domestic product.
Iron ore output at BHP Billiton Ltd., the world's biggest miner, rose 22 percent to a record 28 million metric tons in the three months through March, the company said on April 23.
AWB Ltd., Australia's largest wheat exporter, said on May 21 that first-half profit surged 89 percent because of increased sales by its Landmark farm merchandize unit.
Falling imports, as consumers and companies reign-in spending on imported televisions, cars and machinery, also helped narrow the deficit in April. Shipments into Australia dropped 2 percent to A$21.4 billion from March, today's report showed. Car imports slumped 13 percent and machinery and industrial equipment fell 10 percent.
Business Investment
Imports may slide further in coming months after the central bank signaled it is prepared to raise borrowing costs after two increases this year.
“Import growth will probably remain subdued in the near- term as domestic demand eases amid 12-year-high interest rates,'' said Helen Kevans, an economist at JPMorgan Chase & Co. in Sydney.
Business investment unexpectedly fell in the first quarter as companies spent less on machinery and construction, a report last week showed.
Mobile service provider China Unicom Ltd. is acquiring fixed-line China Netcom Group Corp. in a share swap valued at $56.3 billion, based on Unicom’s stock’s last traded price.
The companies said in a statement Monday that each existing China Netcom share will be swapped for 1.508 new China Unicom (CHU) shares. China Unicom is the country’s second-largest mobile operator by revenue freecreditscore.
China Unicom Chairman Chang Xiaobing said at a press conference the company expects the buyout to close by the end of 2008.
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